Ball Corporation

Greetings and welcome to the Ball Corporation first quarter 2020 earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Thursday, May 7, 2020. I would now like to turn the conference over to John Hayes, CEO of Ball Corporation. Please go ahead.

Thank you, Rita, and good morning, everyone. This is Ball Corporation's conference call regarding the company's first quarter 2020 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes that differ are in the company's latest 10-K and in other company SEC filings as well as company news releases. If you don't already have our first quarter earnings relief, it's available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the notes section of today's earnings release. The release also includes a table summarizing business consolidation and other activities as well as a reconciliation of comparable operating earnings and diluted earnings per share calculations. In addition, the press release financials include descriptions of new segment reporting for our EMEA and other non-reportable segments. As we all know, coronavirus has had a profound impact upon the global business environment. Countries around the world have issued stay-at-home orders and instructed non-essential businesses to temporarily close. Ball provides key aluminum packaging products and services to the consumer beverage, household, and pharmaceutical markets, as well as aerospace technologies and services to the U.S. government. Consequently, the operations of Ball and of its principal customers and suppliers have been designated as essential businesses across our key markets. This designation allowed Ball to continue to operate its manufacturing facilities without significant disruption throughout the first quarter of 2020. while as humbled by our ability to operate in this environment. Throughout our 140-year history, we have relied on our people, our culture, and our businesses' resiliency to navigate tough times while also envisioning and investing in a brighter future. And that is what we are doing. I would like to personally thank our frontline employees, as well as those manning the frontlines of our suppliers and customers, their dedication to working safely while delivering the necessary goods and services have been critical in our support of our communities across the globe and has played a large role in serving the critical missions and programs of the U.S. government. On behalf of our entire company, we extend our heartfelt thanks to the global healthcare community as well as the dedicated professionals and volunteers providing social services to those in need. At Ball, no matter what the circumstances, we always strive to do well while also doing good. At the onset of the crisis, we sought to do our part by providing hospitals and agencies with donations of masks and protective gowns through our aerospace operations, canned drinking water from our global beverage operations, and aluminum cylinders used for the construction of ventilators from our global aluminum aerosol business. In addition, we stepped up our support for the Red Cross, Red Crescent Society, and have empowered our local employees to dedicate an additional $5 million to those critical areas in the communities in which we operate so that we can continue to be an active part of our communities that have been impacted by the COVID-19 crisis. I'm happy to share that at the same time we are able to execute our strategy, continue investing in the future, maintain our dividend, and consistently return values to shareholders. Undoubtedly, there will be effects on our business from COVID-19, and we will continue to manage our company appropriately to ensure employee safety, support of our customers, and ample liquidity for our company. We are controlling the things that we can control, and Ball is well positioned for the near and long term. Joining me on the call today are Scott Morrison, our Senior Vice President and CFO, as well as Dan Fisher, our Senior Vice President and Chief Operating Officer of Global Beverage. I'll provide some introductory remarks. Dan will discuss the global beverage packaging performance and trends. Scott will discuss key financial metrics. And then we will finish up with comments on our aerosol and aerospace businesses, as well as our outlook for the company. First quarter results were strong. And in mid-March, we were able to transition effectively our non-manufacturing employees to working remotely due to global collaboration across our IT, HR, operations, corporate and global business service teams. First quarter comparable diluted earnings per share increased 24% and comparable operating earnings for the corporation were up 12%, with global beverage packaging operation earnings up 5% and aerospace operating earnings up 33% year over year. The company continues to operate with ample liquidity, including $800 million in cash on hand at the end of the quarter, 550 million in committed lines available, and another 500 million in uncommitted lines. This, in addition to our strong annual cash flow, allow us to execute our strategy and stay on track with multiple growth projects. During the quarter, global beverage volumes were up 4%, our aerospace one-not-book backlog increased 14%, and we announced our intent to acquire an aluminum aerosol manufacturing facility in Brazil. As we reflect on year-to-date 2020 performance and the long-term resiliency of our company, our team is well-equipped operationally and organizationally to navigate the current environment and deliver growth and value creation for our shareholders. And the core tenet of our culture has never been clearer. We know who we are, we know where we're going, and we know what's important. Our strategy of investing in the growth opportunities across our various business remain intact, and while the short-term visibility is strained due to the virus and its near-term impact on the various economies, our long-term outlook has not changed. In good times and bad, consumer demand for our packaging product has always remained resilient, and the needs for intelligence, surveillance, and reconnaissance for our government customers has never been stronger. Dan and Scott will discuss the current state of our end markets and the opportunities and risks as we see in the near term, including dislocations to date. Due to the volatility of regions and businesses, we will limit our comments to facts as they exist today, for it would be both imprudent and unwise to prognosticate or extrapolate the near future with any degree of precision. Now, key highlights for the first quarter include Overall global beverage volume grew 4%. North America was up 4% due to a late quarter surge in at-home consumption and would have been up even higher if not for the very tight supply conditions in North America that we have discussed previously. European volumes were up 5% and were up 8% after the first two months, with March being down meaningfully in Southern Europe and the Nordic countries. South American volumes were up 1%. and we're up mid-single digits after the first two months, with March being significantly down, particularly in Brazil and Paraguay. Dan will give more color around these trends than the trends we've been seeing in April in his remarks. Our aerospace business continues to execute well and was up over 30% in operating earnings. We continue to win work and believe that, despite the current environment, most, if not all, of our short- and long-term goals in this business for 2020 and beyond remain intact. our aluminum aerosol business was relatively flat for the quarter after experiencing similar trends that our beverage can business experienced, and we announced our intent to acquire an aluminum aerosol manufacturing plant from Tubex in Brazil. We expect this transaction to close in the third quarter. Construction and hiring for our first dedicated aluminum cups manufacturing facility remains on track. Despite the current curtailments of all major sport and entertainment venues, our outlook for 2020 continues to be strong with letters of intent executed for next year actually ahead of our plans. And we've also used this time to accelerate our retail go-to-market strategy for 2021 and beyond. In summary, we had a strong first quarter that would have even been much stronger if corona had not hit us. Our second quarter, like most companies, will be soft, particularly in South America and to a lesser extent in Europe. We believe at this time that the overall strength of our remaining businesses will allow us to grow operating earnings over the year, and it obviously will be dependent upon the overall impact of the virus and the timing of the opening of our economies in the second half this year. Thank you to all of our colleagues here at Ball for caring for one another. Your dedication in the face of circumstances we cannot control And your hard work to support our customers, our communities, and the global economies where we operate is truly inspiring. We extend our well wishes to all of you listening and for your continued safety and good health. And with that, I'll turn it over to Dan.

Thanks, John. And I echo those sentiments. And in addition to thanking our amazing manufacturing teams, I also want to thank our customers. our suppliers and logistics providers for their collaboration to maintain our industry's ability to serve consumer demand. Last and certainly not least, I have to applaud both our HR leadership and our environmental health and safety professionals. This is an unprecedented time and they have not missed a beat in helping to keep our Ball family safe. Earlier this year during our previous call, I set the stage for 2020 and beyond. My comments focused on demand growth, still water shifting to cans, new customer contracts in North America, our ability to serve market growth in advance of new capacity additions, hiring and training to serve growth, operational excellence, aluminum supply, new product introductions, and our sustainability progress to position Ball as a partner of choice. Those near-term external forces have focused additional time and energy to adapt to new safety protocols, our team's desire to execute on each of these important initiatives has not wavered. We recently announced approval of our science-based targets to reduce our carbon emissions, as well as those of our value chain, and also achieved ASI certification across our European operations, both industry firsts and vitally important to positioning Ball in our packages as a partner of choice for sustainability. Today, my goal is to provide as much information and transparency into our near-term operating environment as possible, while encouraging all of you to focus on our long-term plans and prospects for growth, which even under the current environment, we feel strongly that aluminum packaging will continue to benefit from the sustainability tailwinds we benefited from entering the pandemic. Across our global operations, our teams have been nimble and collaborative, From the onset of the pandemic, daily calls with management, global presidents, supply chain sales, operations, HR and corporate support teams have kept everyone informed, supported and aligned with local and regional mandates, and focused on the best outcomes possible for our colleagues and our customers from a safety and business continuity perspective. Across our supply chain, we have supported one another, shared best practices when necessary, align procedures for managing brief periods of downtime when a customer, supplier, or ball have experienced COVID cases in our operations. We are thankful that our employees impacted by the virus are on the mend or back at work following their recovery. Today, we continue to manage sporadic operational disruptions as well as tremendous growth, complexity, and incredibly tight supply-demand conditions, particularly in North America. Consumer behavior varies by region. In North America, consumers are able to access multiple shopping channels, stock up, and store bulk packages of our product. This led to a short-term surge in beverage can demand as those occasions that occurred in the on-premise and convenience channels shifted to the at-home or off-premise channels. While this trend has diminished somewhat in April, we generally expect higher than anticipated volumes to continue until such time the on-premise begins to open up. The biggest challenge for us will be supplying such demand until we can get our additional capacity online. The additional challenge we face is that the volume is coming largely from more traditional packs for home consumption, and that has not been the focus of our capacity ads in the short term. In Europe, Volume remained relatively normal throughout the quarter, save for Southern Europe, including Turkey, where relatively more beverage containers are consumed on premise and on the go than in other regions due largely to the tourism trade, and the Nordics, where the usual cross-border transactions were curtailed due to travel restrictions. In April, we are seeing those trends continue, and we're turning our attention to what consumption patterns might be impacted further in Russia. where areas like Moscow have been quarantined far later than most of Europe. In South America, we saw seasonally strong demand through early March across the region, followed by a significant slowdown in Brazil and Paraguay. To give context, we saw an approximate 60% decrease in canned shipments in Brazil in the last two weeks of March alone due to the temporary closing of many of the smaller grocery stores gas stations, and convenience stores, where over 60% of beverage cans are purchased. In April, those trends continued, although over the past two weeks, we have seen an improvement closer to an approximate 20% to 30% decline as some of these stores have reopened. Chile and Argentina have been much more resilient, given that nearly 85% of cans are purchased for the off-trade. From a segment operating performance perspective, Ball's North American segment earnings were up 24%. Favorably negotiated customer contracts, operational improvements across the network, and volume growth benefited the quarter and were partially offset by hiring costs associated with new manufacturing lines ramping up in the second half of 2020 and mix associated with certain can sizes sold through the convenience store channel. As previously announced, line additions in our existing Rome, Georgia and Fort Worth, Texas beverage can manufacturing facilities, as well as our new two-line specialty beverage can plant in Glendale, Arizona, are on track to come online in the second half of 2020 and the first quarter of 2021, respectively. As of today, we're still moving forward with our plans in the Northeast with an expected startup in the second half of 2021. Despite C-store traffic slowdown in April, which has limited growth in the energy drink category, and higher costs associated with the pandemic to support self-isolation protocols when needed, I fully expect strong at-home consumption trends across most categories and earnings momentum across North America in 2020 and beyond. In our EMEA segment, despite the negative demand trends resulting from the pandemic in Italy, Spain, and France, We were able to operate our facilities nearly continuously across the segment during the quarter. We thank our colleagues across Europe for their dedication and ability to support 5% volume growth during the quarter while managing various country mandates. Our volumes remain strong in Russia, the UK, and Egypt, while we saw upper single-digit declines in Southern Europe, the Nordics, and Turkey. First quarter EMEA segment earnings were down slightly due to 2 million of Euro earnings translation headwinds, higher freight and warehousing costs due to sales demand shifts by region, an intermittent line downtime late in the quarter, and absorption associated with integrating the Turkish and Egyptian operations into the segment. We remain focused on long-term growth opportunities and are leveraging the segment's plant network to add lines to our existing facilities in preparation for our customers' installation of additional can filling lines. Due to recent travel restrictions between European countries, certain projects have shifted to the right slightly and will not impact our near-term customer commitments. Historical quarterly comparisons for our EMEA and other non-reportable segments have been adjusted accordingly to reflect the company's existing facilities in Cairo, Egypt, and Manisa, Turkey, being consolidated into the EMEA segment and out of other non-reportable segments. Turning to our southern American segment, first quarter earnings were down slightly driven by regional customer mix and the abrupt contraction in Brazilian demand in late March. Ball is the largest producer of beverage cans in South America with nine plants in Brazil and one each in Chile, Argentina, and Paraguay. Even with our plants in Chile, Paraguay, and Argentina continuing to operate, we expect our second quarter South American segment operating earnings to be down meaningful year over year. It is important to note that this is a seasonally slower quarter and our team is staying close to our customers and managing our assets and costs appropriately to ensure the best outcome. As we look forward, Brazilian consumers are beginning to see gas stations and convenience stores reopen near their homes and we will closely monitor their ability to make purchases. The company's Myanmar, Indian, and Saudi beverage can manufacturing results continue to be reported and other non-reportable. The plants continue to operate and were similarly impacted by intermittent downtime in late March and early April. In addition, other includes a 20 million P&L investment to stand up our aluminum cup business. In summary, Global beverage can demand momentum continues in the majority of regions where we operate. Our teams are actively hiring to support our anticipated growth in North America and are focused on maintaining and supporting our skilled labor base across our other operating regions. Thank you again to all of our teams around the globe. And with that, I'll turn it over to Scott.